* Ernst & Young sees spending up 2.5 percent
* New tax, duty rules boost cross-border competition (Adds quotes from interview)
July 30 (Reuters) - The crucial back-to-school shopping season is off to an early start in Canada as retailers follow the U.S. market's lead, Ernst & Young said on Monday.
Daniel Baer, Canadian retail industry leader at Ernst & Young, sees spending rising "only 2.5 percent" this year, compared with just over 3 percent last year, as cross-border shopping and weak consumer confidence hold back sales in an increasingly competitive market.
"Consumers remain cautious, and I think we've seen a fair bit of promotional activity, which will keep prices down," Baer said in an interview. "When you put it into context of inflation and population growth, in terms of volume it's relatively flat."
Baer said back-to-school sales started at the beginning of July in the United States, sparking an early start to the season in Canada as well. He sees tough competition stretching out the season.
"It's all, I think, to try and capture as many fixed dollars as people have to spend. The earlier you start a season, the more likely that you're going to capture that dollar of sales," he said.
Lower prices and greater selection have long lured Canadians to the United States to shop, and in recent years a relatively strong Canadian dollar has also fueled cross-border trips.
On June 1, the Canadian government increased the amount that Canadians can spend abroad without paying taxes or duties, making some cross-border shopping cheaper. Baer said he expects the new rules to boost cross-border shopping. (Reporting by Allison Martell; Editing by Janet Guttsman; and Peter Galloway)